[REN #402] Higher Loan Limits, Tax Reform & 2018 Hot Real Estate Markets

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picture of calendar and computer for Real Estate News for Investors Podcast #402

In this week’s Real Estate News in Brief… Fannie and Freddie are raising loan limits, tax reform may create a California exodus, and Realtor.com names hottest 2018 markets.

Economic News

We begin with a big week for economic news that began with a report on hungry home buyers. The Commerce Department says that new home sales surged 9% in October, to their highest level since the start of the recession. That’s also almost 19% higher than they were at this time last year. The median price of a new home is now $312,800.

The Case-Shiller National Home Price Index rose 6.2% in September because of surging home prices. That’s the fastest annual pace since June of 2014. It was also a bigger bump than analysts expected. The 20-city index is still 1.5% below its high point in 2006.

Consumer confidence is also soaring, it hit a 17-year high in October for a Conference Board reading of 129.5. As MarketWatch reports, “Americans haven’t felt this good about the economy since 2000.” But why all the optimism? Many say that jobs are easier to find, and that business conditions have gotten better.

That positive view is also reflected in the latest report on economic growth. The government says the gross domestic product hit 3.3% for the third quarter. That’s the best performance in three years. President Trump said in a tweet that it would’ve hit 3.9% if the nation hadn’t experienced the damaging effects of the hurricanes.

Outgoing Fed Chief Janet Yellen also offered upbeat comments about the economy in prepared testimony before Congress this last week. She said inflation will probably return to the central bank’s 2% target, and that “overall vulnerabilities in the financial sector appear moderate.” Analysts feel that her comments all but “seal the deal” for a rate hike at the next Fed meeting in two weeks.

The good news continues with a rise in pending home sales for October. The National Association of Realtors says they jumped 3.5%. They are still .6% lower than they were a year ago, however.

Personal income was up .4%, consumer spending rose .3%, and core inflation was .2% higher in October. Construction spending was also 1.4% higher. That’s due to a surge in home construction. Economists expect this trend to continue into next year, which would help ease the tight inventory problem.

Interest Rates

Interest rates continued to hold a level that’s below the 4% mark. Freddie Mac says, the 30-year fixed-rate mortgage lost two basis points over the last week, for a 3.9% rate. That rate was determined by a survey which took place before the report on the GDP, and positive comments from Yellen. Economists are expecting the current economic report card to lead to higher mortgage rates as well.

In other news making real estate headlines…


Fannie, Freddie Loan Limits Rise

Next year, home buyers will be able to get substantially larger home loans backed by Fannie Mae and Freddie Mac. The two government agencies are raising loan limits for a second year in a row because of rapidly rising home prices. The 2018 limit will increase 6.8% to $453,100. That’s up from $424,100 this year and $417,000 last year.

In markets where 115% of the local median home value exceeds this new loan limit, the “ceiling” will rise to as much as $679,650. Higher loan limits will make it easier for people to buy homes in expensive markets along with down payments as low as 5% from Fannie and Freddie, and FICO scores as low as 620 (1).

Tax Reform Could Create California Exodus

Homeowners in high-priced California may throw in the towel and move out of state, if the Republican tax plan is approved. Redfin surveyed almost 900 California homebuyers and 37% of them said they will consider moving away from California if they lose what are called “SALT” deductions for state and local taxes. The House plan would limit those deductions, while the Senate plan eliminates them. Both plans also place caps on the mortgage interest deduction.

A Redfin agent in Silicon Valley said, “The uncertainty of the tax reform bill is looming on our customer’s minds.” She said, “Well-qualified clients who have found a home they like are holding off until the matter is resolved.” She says the tax reform plan has “serious ramifications” for homebuyers (2).

Tax Plan Drives Stock Market Higher

Wall Street is showing more enthusiasm for the tax reform plan which provides big tax breaks for businesses and supports the idea of “trickle-down economics” for individual tax payers. As CNBC reports, the Dow Jones busted through the 24,000 mark for the first time as word spread that the tax plan had a chance of approval in the Senate (3).

The House has already approved its version of the bill. If the Senate bill passes, which may have already happened by the time you listen to this podcast, the two bills would have to be renegotiated to create one compromised bill to be handed over to President Dunning-Kruger Singularity for a signature.

Canada Tips Toward Housing Market Instability

Although housing prices have ballooned in places around the world, including the United States, the nation with the highest level of household debt is Canada. The international Organization for Economic Cooperation and Development says that Canada’s household debt-to-GDP ratio has mushroomed to 101 percent — and that Canadians have more debt than people in the other 35 countries that it tracks.

CNBC quoted the OECD, saying, “The rapid accumulation of household debt for Canadians could also leave its economy particularly vulnerable to shock.” The organization says, many countries experienced high debt loads before the credit crisis ten years ago, but most have also seen those debt loads decrease since then. CNBC says, that’s not the case with Canada and some Scandinavian countries because of… what else? High home prices.

Realtor.com’s List of Hot 2018 Markets

Realtor.com has come out with its list of top markets for both home buyers and investors. And, sitting at the top of that list is an old favorite — Las Vegas, Nevada. Prices are still relatively cheap in Las Vegas. That led to a high ranking for both price growth and sales growth (4).

The other top five metros are Dallas – Fort Worth, Texas; Daytona Beach, Florida; Stockton and Lodi, California; and Winter Haven, Florida.

(1) 2018 Loan Limits: Federal Housing Finance Agency

(2) Redfin Article

(3) Tax Plan and Wall Street: CNBC

(4) 2018 National Housing Forecast: Realtor.com

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